All 1 entries tagged Game Theory
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February 03, 2006
A friend related to me the following game: (Game as in Game Theory, I'm afraid)
A certain person is auctioning off a dollar. (Or a pound, or whatever) The deal is this – the highest bidder will win the prize, but every bidder – including losers – will be forced to pay whatever price they bid.
So what happens in the game? Notionally, two players can make a profit by agreeing to share the prize and refusing to escalate the situation. But such a deal is an inherently unstable one – each player has a lot to gain by screwing over the other. Furthermore, additional players can jump in and demand their share, blackmailing the cooperators by threatening to take all the prize for himself.
At each stage in the game, then, the player always profits by raising his offer to be above that of his rival. And unlike with the various pricing games we learn about in economics, this game doesn't just stop with zero profit. Even when the players are bidding above the prize, they still have an incentive to bid up a little more in order to try and claw back $1 worth of their losses. Extrapolating, we get to the conclusion that the players all end up paying infinite amounts of money for $1.
The only way to win the game is not to play.
Which is pretty cool. I wonder if this can be used to describe some real world situations…